THE REAL ESTATE (REGULATION & DEVELOPMENT) ACT 2016

With respect to
Andhra Pradesh RERA rules
- 2017
Why RERA?

India has a vast population with needs regarding food, house and jobs on an ever-increase mode. The housing among these fields is one of the
major ones. Thousands of people have grown to be rich and as many of them have made loss in real estate business. It is the one of the leading
revenue generators for the government. Even though it has such strong presence in the country, it never had a regulating body. Due to the failure
of the government to observe this, many people have become the victims of some scheming people doing the real estate business. We are not
saying that every real estate project chooses unethical manner to sell their units, but lately, and lately here should be seen as a few years, this has
increased manifold with the economy growth of India. The buyers who come from a middle-class background have time and again fallen prey to
such petty real estate developers. There was a growing need to bring a transparent government body which can check the developers.

Finally, the government delivered by making an authority known as RERA which stands for Real Estate Regulatory Authority. It was passed in March
2016 by the parliament. This promises to bring a justice to the buyer through making strict policies that have to be fulfilled by the developers to sell
their projects. The major problem that real estate in India is facing is that of the delayed possession given to the home seeker by the rich and the
cunning builders. Thus, RERA will help people by bringing in a high level of transparency and discipline that these builders must have to follow.
Specifically, RERA will check all the under-construction projects as maximum swindling is done in this phase.

Following are some of the risks that people face through developers:
• Selling of flats multiple times to different parties.
• Delay in giving possession to the buyer which happens due to various reasons and malpractices such as funding crisis, demanding additional
charges in the name of facilities, reducing carpet area, changing the plans of the societies etc.
• The contracts made are one-sided in the favor of the developer, for example, a penalty of a massive 21% if one delay’s the payment even by
a day.
 WHO DOES IT APPLY TO….

Applicability of RE Act
• The RE Act extends its applicability to:
• Commercial buildings including godowns (with an intent to sell all or some of the
developed area), residential apartments, plotted developments
Residential +
commercial • All ongoing projects in respect of which completion certificates have not been issued
projects
• RE projects developed in phases would require registration for each phase separately
• All future RE projects which do not fall under the exemption would have to be registered
Projects on
land of 500 sq • Exemptions:
mts or more
• Projects being developed on land less than 500 sq. mts OR where the number of units
does not exceed 8 (all phases)
• Obtained completion certificate for the project before the commencement of the RE
> 8 units
Act
• Redevelopment RE projects where no new allotments are to happen are also
exempted
No
completion • Projects outside the "Planning Area"
certificate
issued
No clear transition provisions have been laid down under the RE Act in relation to the under
construction projects
DETERMINING PROJECT PHASE

Residential (Multiple towers, – The Real Estate (Regulation and Development) Act 2016
wings, premium blocks etc) + Club does not define phases
Ongoing Projects

House
– Mentions that where RE project is developed in phases,
every such phase shall be considered a standalone RE
Residential + Commercial+ Retail+ project requiring separate registrations
Club House
– Maharashtra RERA Rules: "Phase of a Real Estate Project"
may consist of a building or a wing of the building in case
Large projects – Township of building with multiple wings or defined number of
+Residential+ Commercial floors in a multi-storeyed building/ wing
+Hospitals+Schools
REGISTRATION PROCESS IN A NUTSHELL

Yes No
Qualifying
project
Application to RERA for
Registration

Registration to be granted / Out of RER Act

rejected within 30 days purview – Excluded
project

Promoter to create web page

for the Project and provide all
details •<= 500 sqmt of built up area
•<= 8 units (phases-wise or project-wise)
Sale / booking for the Project •Completed projects
can commence Excluded
•Projects developed to be leased (ie not for
projects sale)
Registration valid till date of •Unsold projects in respect of which CC has
completion of project / phase been received
as declared by Promoter
REGISTRATION DISCLOSURES

• No project promotions/ advertisements/ marketing would be permitted before registration

• Application to be made for registration of the project requires the developer to provide details/ disclose the following:
• Brief details of the enterprise viz name, registered address, type of the enterprise
• Details of the projects launched in the past five years, litigations, status of other projects and delays
• Copy of the commencement certificate , sanction plan, layout plan, plan of development plan to be executed
etc
• Location details of the project, clear demarcation of the land proposed to be developed
• Proforma of allotment letter, agreement for sale, and the conveyance deed proposed to be signed with the
allottees
• The number, type and carpet area of the apartment and area of garages
• Details of RE agents, contractors, architect, structural engineer etc
• Declaration supported by an affidavit
QUALIFYING PROJECTS - ISSUES

• Land owner share under JD arrangements (both area and revenue sharing arrangements) – Land owner is explicitly
covered under "Promoter" definition
• Even a Constructor gets covered under the definition of Promoter – Joint liability aspect needs to be checked
• PE Investor, land owning SPV – Promoter?
• Sale of small plots by individuals post minimal development – Though not intended, some cases could meet the ‘Project’
and registration provisions (view supported by FAQ’s released by few states)
• Transfer in the course of re-organisations / restructuring – No specific exemption – Whether covered under sale /
purchase in "any manner"?

Key change from current industry practice as under the current regime sale / booking possible only upon registration which is post
receipt of all approvals – Pre-launches / launches prior to approvals would be a challenge. Fungibility of cash from projects restricted
REAL ESTATE REGULATORY
AUTHORITY
 REAL ESTATE REGULATORY AUTHORITY

Establishment of Real Estate Regulatory Authority (“RERA”)

• RE Act provides for establishment of the RERA in all states to regulate projects being developed in that state, which shall have the
powers of the civil court while trying any suit
• RERA to be set up by the State Government(s) within a period of one year from the date of RE Act coming into force
• Until the establishment of RERA the State Government shall designate any Regulatory Authority to perform the functions of RERA
• RERA would act as the nodal agency to co-ordinate efforts regarding development of the RE sector and render necessary advice to
the State Government to ensure the growth and promotion of a transparent, efficient and competitive RE sector
• One of the functions of RERA is to recommend to the local authorities and State Government, the creation of a single window
system for project approvals

The RE Act does not contain concrete steps to address the long standing demand of the developers for a single window system.
Structurally, therefore, the RERA results in a fundamental imbalance, where the Developer is put under onerous obligations on various
aspects related to the development of the project but there is a lack of an appropriate mechanism that ensures timely approvals towards the
same

RERA is intended to perform the same role for property/ RE transactions as the SEBI does for security transactions in the capital markets
FUNCTIONS AND POWERS OF RERA

FUNCTIONS POWERS

• Registration and regulation of the RE • RERA may suo moto or on receipt of complaint call for information and conduct investigation
projects
• RERA may issue interim orders during the pendency of proceedings
• Maintenance of a database on its website
• RERA has the power to impose penalty or interest in regard to the contravention of the of
for public viewing of all registered RE
project, details of the developers and RE the obligations cast upon the developers, allottees or RE agent
agent • RERA Rules grant following additional powers -
• Fixation of standard fees to be levied on • require the promoter, allottee or real estate agent to furnish in writing such information
the allottees, promoters or the RE agent
or explanation or produce such documents within such reasonable time, as it may deem
• Ensure compliance of its regulations and
necessary
other obligations cast upon the promoters,
allottees and RE agent • Any public record or document or copy of such record or document from any office
subject to the provisions of the Indian Evidence Act, 1872
FUNCTIONS & DUTIES OF DEVELOPERS
DECLARATION BY DEVELOPER AT REGISTRATION
STAGE

• Legal title to the land proposed to be developed and details

• Land is free from encumbrances and details
• Time period within which the project is proposed to be completed
• That 70 percent of the amounts realized from the project shall be deposited in a separate account and that it would be
utilized only for cost of construction and the land cost
• Undertake to obtain all pending approvals

Registration to be granted for a specified period. Extension possible upon application in reasonable circumstances
THE 70 PERCENT CONDITION

Conditions provided in Section 4(2)

• 70 percent of the amounts realized for the sale of the real estate project from the allottees, from time to time, shall be
deposited in a separate account to be maintained in a scheduled to cover the cost of construction and the land cost
and shall be used only for that purpose The Promoter shall withdraw the amounts from the separate account, to cover
the cost of the project, in proportion to
the percentage of completion of the Project
• Engineer + Architect + Practicing CA to certify that withdrawal is in proportion to the percentage of completion of the
Project
• Rule 5(1)(i)(b) of Maharashtra Rules: Architect - PoC + Engineer - Actual cost incurred + CA – Cost (land & construction)
and proportion of actual costs to estimated total costs. Such proportion to be used to determine withdrawal amount.
(Andhra Pradesh rules are silent on this aspect)
• Auditor to certify in annual statements that amounts collected for a particular project have been utilized for the project
and the withdrawal has been in compliance with the proportion to the percentage of completion of the Project
COMPONENTS OF COST

LAND COST CONSTRUCTION COST

• Acquisition cost, lease charges overhead • On-site and off-site expenditure for
cost, marketing cost, legal cost and development of project
supervision cost • Payment of taxes, fees, charges,
• Premium paid to obtain development premiums, interest etc
rights, FSI, additional FSI, fungible FSI, • Principal sum and interest payable to
and any other incentive under DCR financial institutions, scheduled banks,
• Acquisition of TDR NBFCs or money lenders
• Consideration payable to the outgoing • Rehabilitation Scheme: expenditure
developer to relinquish ownership and incurred towards clearance of land or
title rights over such land parcels encumbrances for temporary transit
• Amounts payable to State Government or accommodation, construction of rehab
Competent Authority towards stamp building, overhead cost, ASR linked
duty, transfer charges premium, fees, charges and security
• Premium payable as per annual deposits to authorities
statement of rates (ASR) for
redevelopment of land owned by public
authorities
 THE 70 PERCENT CONDITION – ILLUSTRATION

Cost Assumptions Sale Assumptions Amount

Land that needs % completion X Retentions
Land cost 20 50 Cumulative
Particulars to be Project cost (Restricted
Construction cash flow
Construction cost 20 50 deposited (cumulative) cash)
(70%)
Overheads, Interest, 30 Sale value 100
Others* Agreement 10.00 7.00 0 7.00

Project Cost 70 Instalment 1 35.00 24.50 14.00 10.50

Instalment 2 60.00 42.00 28.00 14.00
Payment and Construction Schedule
Instalment % completion Instalment 3 85.00 59.50 49.00 10.50
Booking stage
10% 0 Instalment 4 95.00 66.50 59.50 7.00

1st Milestone 25% 20% Possession 100.00 70.00 70.00 0

2nd Milestone 25% 40%

Float - Collateral for other projects?
3rd Milestone 25% 70%
4th Milestone 10% 85% How will this work in JD arrangements (Revenue as well as
Area sharing)?
Possession 5% 100%
*The permit withdrawal only for onsite expenditure for the physical development of the project. Such rules, if implemented could further restrict the quantum of cash withdrawal, thereby
increasing the restricted cash component
FUNCTIONS AND DUTIES OF DEVELOPER

Website • Details of the registration granted by the RERA and quarterly updates on list of number and types of
apartments or plots booked, approvals granted, status of the project etc

Provide information to • Sanctioned plan, layout, stage wise schedule of completion of the project including the provisions for
the allottees civic infrastructure like water, sanitation and electricity

General • Responsible for all obligations, responsibilities and functions under the provisions of the Act or the rules
and regulations
• Responsible for obtaining lease certificate, completion / occupancy certificate
• Providing and maintaining essential services until take over of the maintenance by association
• Execute conveyance deed
• 11(4)(h) - After executing agreement for sale, not to mortgage or create a charge on land/ plot/
apartment or if created should not affect the rights and interests of the allotees
• RERA Rules prescribe the developer to a declare stating that the promoter shall not discriminate against
any allottee at the time of allotment of any apartment, plot or building, as the case may be in Form-A
FUNCTIONS AND DUTIES OF DEVELOPER

Veracity of • Responsible for compensation for loss or damage caused due to incorrect / false statement made in the
Advertisement prospectus or notice of advertisement or in relation to the model apartment

• Prohibited from taking more than 10 percent as advance from the allottees without first entering into a
Advance
written agreement for sale
• Interest payable by the developer and the allottees in case of default to be specifically mentioned in the
agreement for sale

Alteration • Any structural alteration / addition to the sanctioned plan can now be made only with the previous
written consent of at least 2/3rd of the allottees (other than the developer)

Transfer • Transfer of RE projects to third party would now require period written consent of 2/3rd allottees and
RERA
• No extension of time to comply with all the pending obligations of the erstwhile promoter
FUNCTIONS AND DUTIES OF DEVELOPER

• Obtain insurance as may be notified by the appropriate Government authority including in respect of the
Insurance title of land and construction of RE projects

• Payment of interest to the allottees in cases of default (rate of interest for this purpose has been fixed at
Interest the same rate which the allottees would have to pay in case default) within 45 days of it becoming due
• Karnataka RERA rules prescribe an interest rate of State Bank of India Prime Lending Rate plus 2 percent
(13.85 per cent + 2 per cent)

• Any failure on the part of the developer to hand over the possession of the property in accordance with
Handover
the agreement for sale would empower the allottees, at their will, to withdraw from the project and
demand refund of the amount paid along with interest

• Compensation not subject to law of limitation

No limitation

Defect liability • Fixing structural defects for 5 years after transferring the property to the allottees
• Any loss caused due to defective title would have to be compensated by the developer and this would
not be subject to limitation provided under any law
REVOCATOIN OF REGISTRATION

• Debar the promoter from accessing its

REVOCATION website
• Listing of developer as defaulters
Consequences • Freezing of the bank accounts
of revocation • This may even include the handover of the
• Promoter is in default of the requirements of the Act development to association of allottees /
or regulations competent authorities upon consultation with
the relevant state government
• Violates terms and conditions of the approval given
by the competent authorities (local authorities)
• Involved in unfair practice or irregularities
• Unfair practice means a practice which for the
purpose of promoting the sale or development or any
real estate project adopts any unfair method or
deceptive practice
• Opportunity of being heard with 30 days notice
REAL ESTATE AGENTS
REAL ESTATE AGENT

Every RE agent is required to be registered with RERA for facilitating sale,

purchase of any RE project

RE Agent Shall not facilitate purchase or sale of RE project not registered with
RERA

Maintain and preserve books of accounts, records and documents as may be

prescribed

Not involve in unfair trade practices

Facilitate the possession of all the information and documents to the allottee
FEW PERTINENT POINTS

Can they piggy-back on the disclosures of the promoters?

– No, they can’t

Definition of ‘Real Estate Agent’ includes any person who negotiates or acts on behalf of one person in a transaction of for sale
of real estate with another person and receives remuneration for his services. It includes a person who merely introduces
prospective buyers and sellers to each other for negotiation for sale of real estate.

– Seems to be an impractical proposition given the tens of thousands of people, having regular jobs, who sometimes
moonlight as middle men for a small commission
– Online portals such as 99acres.com, Housing.com, Common Floor etc should get covered (confirmed by FAQs)

Consolidation is bound to happen and many may leave the field - To remain in the mainstream, certain minimum scale needs
to be achieved

Fate of older state laws such as the Haryana Regulation of Property Dealer and Consultancy Act, 2008
– Interestingly, this law is not listed in the list of repeals
– Except for the requirement of registration (a process requiring fee) and the obligation of maintenance of a register, the
instant law does not actually mainstream or bring professional standards into property brokerage
– Law also silent on the qualifications of a broker/ RE agent (for instance certified trainings etc which is prevalent in
European countries and the Middle East nations). State Governments focused to garner more registration fee rather
(INR 500,000 as per draft rules in Karnataka!)
ALLOTTEES – RIGHTS AND
OBLIGATIONS
ENTITLEMENTS

Claim the possession of apartment as per

the time period of completion committed
by the developer

Stage-wise time schedule of Claim the refund of amount paid along

completion of the project with interest in case of failure to provide
possession of the property

Approved sanctioned
plans, layout plans
Entitlements
Claim the refund of amount
paid in case of revocation of his
registration
OBLIGATIONS

Participation in formation of an
association or society or co-
operative society

Liable to pay interest on

delayed payments Take possession with 2 months
of receipt of occupancy
certificate
Make payments within time
as specified in the
agreement
Obligations Participate towards registration
of conveyance deed
JUDICIAL MECHANISM
JUDICIAL MECHANISM

High Court • Under the RE Act, any dispute resolution relating to

Required to adjudicate matters on any violation or contravention of provisions is
cases within 60 working through the RERA or the adjudicating officer who would
days from the date of receipt be appointed by RERA for determining the compensation
RE Ap pellate of appeal/ application
• Further, the civil courts would have no jurisdiction to
Trib unal entertain any suit or proceedings on matters covered
under the RE Act
• In respect of matters pending before consumer courts, the
appellants have the option to withdraw such complaint
and file an application before the adjudicating officer –
RERA Adjudicating Officer Aspect of completion certificate?

Other matters Matters to be adjudicated by AO

Obligation of promoter regarding veracity of the
advertisement of prospectus
*Section 31 – As per the definition of
“aggrieved person”, even an outsider Adherence to sanctioned plans and project specifications by
(who is not the customer or the the promoter
association of allottees) could file a
complaint with the Adjudicating Return of amount of compensation
Authority or the officer
Rights and duties of allottees
DEFAULT AND PENALTIES
 CONSEQUENCES OF DEFAULT

SL No NATURE OF OFFENCE PENALTY

Developer
1 Advertise, market, sell or offer for sale or invitation to public to Shall be liable to penalty extending up to 10 percent of the cost of
purchase the plot, apartment or building with out registration with the project
the RERA
2 Continued violation of above offence Punishable with a fine of 10 percent of the cost or imprisonment for
a term extending up to 3 years or both
3 Failure to make an application for registration of RE project Shall be liable to penalty extending up to 5 percent of the cost of the
project

4 Failure to comply with the orders or directions issued by RERA Penalty for everyday during which the default continues,
cumulatively which may extend up to 5 percent of the cost of the
project
5 Contravene any other provisions other than listedabove Shall be liable to penalty extending up to 5 percent of the cost of the
project
6 Failure to comply with the orders or decisions of the Appellate Penalty for everyday during which the default continues,
Tribunal cumulatively which may extend up to 10 percent of the cost of the
project or imprisonment for a term extending up to 3 years or both
CONSEQUENCES OF DEFAULT

SL No NATURE OF OFFENCE PENALTY

Agent
1 Failure to obtain registration or fails to comply with his functions as Penalty of INR 10, 000 for everyday during which the default
prescribed continues, cumulatively which may extend up to 5 percent of the
cost of the apartment, plot or building
2 Failure to comply with the orders or directions issued by the RERA Penalty for everyday during which the default continues,
cumulatively which may extend up to 5 percent of the cost of the
apartment, plot or building
3 Failure to comply with the orders or decisions of the Appellate Penalty for everyday during which the default continues,
Tribunal cumulatively which may extend up to 10 percent of the cost of the
apartment, plot or building or imprisonment for a term extending up
to 1 year or both
Company

1 Any offence committed under the RE Act Every person in charge shall be punished accordingly

Imprisonment under Section 54, 64,66 and 68 – Compounding fee prescribed under the State Rules
STATE RULES – ANALYSIS
OVERVIEW – RULES IN ANDHRA PRADESH

• Andhra Pradesh Real Estate (Regulation and Development) Rules, 2017 released on 27-03-2017 (G.O.Ms.No-115)
• While many states have dropped the requirement of income tax return of the promoter for registering the project (owing to confidentiality aspect),
the draft rules released by Karnataka Government provides for the requirement of income tax return of the promoter for preceding 3 years similar to
Karnataka
• "Cost of construction“ to mean onsite expenditure for the physical development of land - for withdrawal from escrow account
• The Promoter shall give detailed and self-certified information such as his ongoing Project details, including the status of the project and the extent
of completion, completed Project details, Project wise information of bookings or any other information, if so demanded in writing by the intending
Purchaser
– Roles, responsibilities and obligations of promoters/ allottees specified
– Buyer can stop making payment if the project does not achieve the construction milestones because of promoter’s fault
– Undertaking from the promoter for timely delivery of the project
– Promoter required to clearly indicate date of delivery
– Provision for extension of project delivery date in cases of delay caused due to "force majeure"
– Date of grant of commencement certificate, land title, number of storeys and plots in the project, carpet area, common area, total price to
be mentioned
– Total price is escalation free except when development changes are altered
– Provision for rebate for early payments of installments payable by the Allottee by discounting such early payments @ _____% per annum for
the period by which the respective instalment has been made is included
Important points

• Every promoter shall make separate application for registration of every project for the construction of each phase, separate building or group of
buildings in case of Layout as may be with Authority

• Promoter shall disclose the Number of floors to be constructed in building and shall also disclose Number of Apartments for sale in the project
on each floor, Carpet Area of such Apartments for Sale in the said project along with area of the Balcony and or Verandah or exclusive open
terrace area if any

• Promoter shall disclose Detailed technical specifications of the construction of the building/s as approved by the Competent Authority under any
law for the time being in force

• Promoter shall Estimate of the expenditure for the construction of the building and the source from which such expenditure is sought to be
financed

• Promoter to disclose the Details of financial agreement made with any bank or other financial institution recognized by the Reserve Bank of India
and of legal safeguards taken, if any, for the construction of building, or transfer of building by sale, gift or mortgage or otherwise

• Promoter to submit the Copy of documents showing details of mortgage or any other legal encumbrances created on land in favor of any bank or
financial institution recognized by the Reserve Bank of India

• Promoter to submit the authority mentioning the period within which the physical possession of the apartment is to be handed over to allottees
and Details of the nature of the fixtures, fittings, amenities and common areas, of the apartment, plot or building
Penalties

S.No OFFENCE PENALTY

1 If a promoter advertise, market, book, sell or offer for sale, or invite 10% of the estimated cost of the real estate
project.
persons
to purchase in any manner any plot, apartment or building, as the
case may be, in any real estate project or part of it, in any planning
area, without registering the real estate project with the Real Estate
Regulatory Authority established under this Act
2 If any promoter, who fails to comply with, or contravenes any of the 10% of the estimated cost of the real estate
project.
orders, decisions or directions of the Appellate Tribunal
3 If any real estate agent, who fails to comply with, or contravenes any 10% of the estimated cost of the plot,
apartment or building, as the case may be, of
of the orders, decisions or directions of the Appellate Tribunal the real estate project, for which the sale or
purchase has been facilitated.

4 If any allottee, who fails to comply with, or contravenes any of the 10% of the estimated cost of the plot,
apartment or building, as the case may be.
orders or directions of the Appellate Tribunal
 ANALYSIS

PARAMETER ANDHRA PRADESH RULES

Current status Notified, RERA registration started

Key disclosures at the time of As per rules prescribed for UTs

registration

Registration fee for RE Rule – 3A of the Chapter II – AP RERA rules.

projects (Dynamic)

Time period for registration of Within 3 months (90 days) of notification of the Act (ie by March 27, 2017)
ongoing RE projects
 ANALYSIS

PARAMETER ANDHRA PRADESH RULES

Fee for extension of Rule – 7 of the Chapter II – AP RERA rules.
registration of RE project (Dynamic)

Registration fee for RE Rule – 3 of the Chapter II – AP RERA rules.

Agents (Dynamic)
 ANALYSIS

PARAMETER ANDHRA PRADESH RULES

Renewal of RE Agent’s Application to be filed at least 90 days
Registration prior to the expiry of registration.

Fee: Same as for new registration (Dynamic)

Interest payable by promoter Prevailing State Bank of India Prime lending rate as on the date on which the amount becomes due + 2 percent
and allottee

Timelines for Refund 45 days from the date on which such an amount becomes due. Every case of such refund payment shall be reported
by the concerned promoter to the Authority within 30 days

Appeal Filing fee Filing fee: Rs 1,000

FEW IMPORTANT FAQ’s
FEW IMPORTANT FAQ’s*

33. Is there any time limit prescribed for the promoter for formation of society or any other legal entity of home buyers?

Promoter has to enable formation of Legal Entity like Cooperative Society, Company, Association, Federation etc within three months from the
date on which fifty one per cent of the total number of Purchasers, in such a building or a wing, have booked their apartment.

38. Will ongoing Project have to stop sales or construction till receiving the Registration?

At the end of ninety days from the date of notification of Section 3 of the Act, the promoter of an ongoing project shall not advertise, market,
book, sell or offer for sale or invite persons to purchase in any manner any plot, apartment or building, unless he registers the project.

40. If an ongoing project is registered under MahaRERA, then will the Act be applicable for the entire project or will it be applicable only to
units sold after registration?

Registration is of the Project/Phase and hence the provisions of the Act are applicable to all units of the Project/Phase.

46. Can project finance taken by promoters from financial institutions be withdrawn from designated 70 percent account?

Yes, if this is declared at the time of registration and subject to provisions of Section 4 of the Act and Maharashtra Real Estate (Regulation and
Development)(Registration of Real Estate Projects, Registration of Real Estate Agents, Rates of Interest and Disclosures on Website) Rules, 2017
made there under. However, the money withdrawn should be utilized towards construction expenses of the project, on priority.

FAQ’s released by the state of Maharashtra & in Quora

FEW IMPORTANT FAQ’s*

47.In case of joint development with land owner on revenue share basis or area share basis, whether land owner’s component could be
withdrawn from designated account of 70 percent?

The Act makes both the Promoters and the land owner or any such parties which are beneficiary of a sale of a project and receive payments from
allottees, as Co-Promoters and hence liable to adhere to the provisions of the Act and Rules and Regulations made there under.

48.Whether money collected from allottees towards stamp duty, registration, share money for society, deposits for maintenance, corpus
funds, infrastructure charges, parking charges etc., are required to be deposited in the designated bank account (70 percent)?

Yes, since these are part of the project cost

56. What if Part OC is received for the project: is it exempt from registration?

No

60. Separate Bank Account: can escrow account opened with the Bank from whom loans are availed, be treated as Separate Bank Account for
a MahaRERA registered project.

No. A separate bank account needs to be opened in accordance with the provisions of the Act and rules made there under.

FAQ’s released by the state of Maharashtra & in Quora

FEW IMPORTANT FAQ’s*

61. Can separate account be more than one since at times, there might be multiple lenders in same project (building wise lender) though
developer might register the project at one go?

No. There should be one designated bank account for every registered project or registered phase of a project.

63.Referral bookings: Existing customers referring to others for buying the flat in same project or other project of same developer: Will they be
treated as Real Estate Agent?

Yes, if it is against a consideration. Real Estate Agent is clearly defined in Section 2(zm) of the Act

64.For Foreign brokers registration and advertisement outside India, will same rule apply as in India ?

Yes, if it pertains to a registered project under MahaRERA.

FAQ’s released by the state of Maharashtra & in Quora

POTENTIAL IMPACT
POTENTIAL IMPACT - RULES OF THE GAME
REDEFINED?

• Sale / booking possible only upon registration which is post receipt of all approvals – Pre-launches / launches prior to approvals would be a
challenge
• Challenge of "impossibility of performance" in absence of a regulatory body in many states – Filing a letter in the interim with the
Department of Housing intimating the details of ongoing projects – Registration to be done by July 31, 2017
• Fungibility of cash from projects restricted – Impacts developers’ ability to plan new projects with cash flows from launched projects
• Cash flow planning to factor in the change in the ‘game’ – 70 percent condition
• Increased obligations - Onus on association formation, structural defect liability etc
• Delay in completion / possession to lead to interest (as per prescribed rates) and compensation – no scope for relaxation – Provisions heavily
tilted towards consumers
• Increased compliance burden and costs
• Transitionary provisions would bring under construction projects under the purview of the RE Act – This may not have been factored in when
the project was launched and hence it can cause a lot of pain
• Positive Impact – Act provides that RERA has to implement a ‘single window clearance’ system
POTENTIAL IMPACT - RULES OF THE GAME
REDEFINED?

• Section 15 – Transfer of RE Project to third parties:

– Project level stake sale possible?
– Requires approval from 2/3rd allottees + Authorities

• Section 16 – Insurance mandatory

 GREATER THAN BEFORE ROLES
UNDER RERA REGIME

• Cash flow / liquidity • Aligning of agreement of • Prioritize design • Strengthen delivery and • No project promotions/
management (70 percent sale/ affidavits/ development and management capabilities advertisements/
clause) declarations/ transaction delivery capabilities around execution, marketing before
documents as per RERA monitoring, handover registration

Design

Operations

Marketing/ Sales/ CRM

• Managing project wise
Legal & Regulatory • Fix structural defects or and operations
Finance

bank accounts and • Deep land due diligences any other defect in • Advertisement – Crisp
withdrawal certifications workmanship, quality or • Managing alterations and and clear, no false info,
• Registrations/ provision of services or additions deliver what is promised,
• Impact on pricing Extensions/ Updation of any other obligations of no puffery/ oversized
details on RERA website the promoter – 5 year • Empanelment of channel statements
• Alternate ways of warranty period partners (including
funding/ sourcing equity • Formation of association architects, engineers, • Provide information to
partners of allotees within 3 • Minor vs major real estate agents etc) allotees - sanctioned
months from the date of additions/ alterations plan, layout plan, stage
• Insurance majority of units being (changes) to the • Institutionalize periodic wise schedule of
booked structure as per RERA checks & process completion
• Monitor cost and sanctioned plan – careful compliance audits
schedule overruns • No mortgage or charges consideration • Sanitize marketing
etc prejudicial to • Redefine indemnities collaterals/ brochures etc
• Baseline schedule and customers’ interest • Institutionalize periodic and liabilities for channel (identify and address
budgets (determination RERA checks partners and associates conflicting customer
of estimated costs etc) • Vendor Management commitments) and align
(renegotiating back to • Changes in ERP, MIS, to RERA regime,
• Auditing of project back contracts for Score cards including email and
accounts (RERA Audit) defaults)/ Dispute communication
Resolution/ Cyber • Process compliance exchange with customers
• Institutionalize periodic Security Audits
RERA checks • Managing cancellations
• Ring-fencing senior (to be compliant with the
management/ promoters terms agreed)
liabilities
• Broker Management
WHERE PROFESSIONALS CAN HELP?

– Individual discussions with the core team (marketing and sales, accounting and
compliance, construction and product strategy, customer relationship, Finance,
operations and design) and lawyers (internal/ external) and help in creating a
project/ state specific handbook for RERA compliances

– Assistance in registration of existing and new projects with the RERA authorities
Compliance and reporting
– Overall transitioning under RERA (documentation, sanitization of marketing

Training
Restriction on fungibility of cash collaterals etc) for the ongoing projects
from projects
– Assist in modelling the utilization of installment receipts from the allottees to
Increased obligations ensure optimum utilization of the funds available
Process changes
– On-call advisory services in relation to queries that may be raised from time to
time

– Update on the key on-going changes in the RERA legislation and highlight the
impact on business on a time to time basis
FOR PROMOTERS:

Registration –

The rules under RERA says that all the real estate projects, whether commercial, residential or under construction projects have to be registered
with RERA under three months of its implementation. While applying for the registration, the promoter shall give a copy of ownership of land, every
small detail of the project that has been planned, schedule of the construction, status of land, pro forma agreements and the information of all the
real estate agents, contractors, engineers etc.

The Authority understands that the government is also a culprit in the real estate scams, as their late approval of plans delays a project or its
development. This further discourages a promoter and he uses immoral practices. Real Estate Regulatory Agency has given strict guiding principle to
RERA that it must register or reject an application within a month. If a project gets rejected, RERA is answerable to the promoter that on what basis
his project has been cancelled. If these two things are not met by the government, the promoter’s project will automatically be registered with
RERA.

RERA has the power to cancel the registration of a project if it finds any wrongdoing by the promoter regarding anything.

Changes to the registered plan – If a plan has been registered under RERA, it can only be changed with the consent of two-third buyers of that
project. This will help the Authority and the buyers to tackle the problems arising due to the consistent change of plans by a promoter even if the
buyer has signed an agreement with a particular plan and layout of the project.
Public Portal – If the project gets registered, then the promoter will be provided a login ID and password so that he can upload all the details of the
real estate project along with his photograph on the RERA India’s website. This will be done so that a buyer can access to all the necessary details
that he should know before signing the agreement. A promoter cannot advertise a project until it gets registered. Also, the website will contain the
list of defaulters so that a buyer can beware of them.

Finishing the misuse of funds – Many times it happens that a builder uses the money he gets from a project to invest it in another project without
finishing the previous one first. Doing this, a promoter draws himself into a web created by his owning doings and this leads to major problems for
the buyers. Thus, to end this greed of some promoters, RERA has made some rules. Now, a separate account would be made in the name of the
project. Leaving a minimum fund of 50% which a promoter gets through a project’s sale is mandatory. This will ensure that even if the promoter
faces losses in other deals, he will have money to construct that project.

Functions and Duties of a Promoter – RERA has given certain functions of a promoter that he must do for a buyer. These include the details of a
project’s registration, updates on projects, information about actions of a promoter regarding the project etc. A promoter has to take care of the
services he provides and will have to guide a society until the society makes a local authority. The promoter shall also provide completion or
occupancy certificate from a local governing body. The promoter cannot transfer the real estate project without a consent of two-third buyers of
that project and without the prior approval of the Authority. A promoter has to refund and return the entire amount if he fails to deliver a project.
FOR BUYERS:

RERA has set up some fundamental functions for the buyers which are laid upon as their rights.

 A buyer is entitled to know all the plans of a real estate project in detail. He has the right to know the stage-wise completion of the project which
includes the amenities as well.

 A buyer is entitled to claim a written possession of his house and the common areas which he is entitled to as a member of the project. He has
the right to get all the documents regarding the project.

 A buyer has to pay the amount he has signed the agreement in the court. He will have to pay interests if he delays the payment. However, a
promoter has to pay the same interest to the buyer if he delays his project or if he has not been able to provide what was said in the agreement.

 The buyer should participate in forming an association after taking the physical possession of his house. He should also be active on the website
of RERA India so that the flow of information can be maintained. His participation towards the deed of the apartment can be beneficial for other
buyers.

Moreover, the establishment of RERA with those of Central Advisory Council and the Real Estate Appellate Tribunal will work to enhance the real
estate market of India, bring the buyer confidence back and penalize those promoters and real estate agents who work unethically.
FUTUTRE EXPECTED SCENARIO FROM RERA

•Imposing clear obligations •Fast track dispute resolution

•Setting minimum standards of •Develop jurisprudence on the subject
accountability
•Transparency of contractual conditions
Regulatory Appellate
Authority Tribunal

•Symmetry of information
•Standardization & Professionalism Developer Consumer •Effective consumer protection
•Grading of developers
•Establishment of mutual trust.
•Timely project completion
•Promotion of domestic investment
•Promotion of FDI, ECB
BENEFITS TO PROMOTERS

• Weed out fly by night operators from the sector.

• Will infuse credibility by making the sector mature on the lines of securities, banking, insurance, telecom etc.

• Channelize investment into the sector :

 Huge unsold stock, as consumer confidence is low- Bill would restore investment sentiment of consumers and help address
inventory pile up.

 National Housing Bank (NHB) & financial institutions have demanded enactment of Bill, as lending is very risky without
regulatory mechanism in place.

 Foreign investment (FDI, ECB) not showing interest in India’s real estate due to regulatory vacuum.

• Finance Ministry has assured providing ‘infrastructure status’ for affordable housing projects, once the Regulations are in place. This will result in
reducing borrowing cost with added fiscal concessions.
BENEFITS TO BUYERS

• Make operations transparent promoting informed choices for buyers.

• Disclosure of ‘Carpet Area’ for sale will curb unfair trade practices.

• Carpet Area to mean net usable floor area of an apartment which includes area covered by the internal walls and excludes the area covered by
the external walls, areas under service shafts, exclusive balconies or open terrace areas. This will give an assurance to homebuyers that they will
pay for the actual space that they are getting.

• Model Agreement would end one sided agreements.

• Time and cost overruns due to fund diversion will be controlled.

• Indefinite delays in dispute resolution through civil courts will end.

• Bill provides curative & preventive measures, with powers to enforce specific performance unlike consumer protection laws.
Reference
Rahul Talakola
E: [email protected]
M: +91 9634506369